The government aims to raise the rates of encouraging growth and achieve rising success by creating economic opportunities for the public. 1.1 Explain the purpose of a selection of indicators of national economic behaviour which are Economic growth, Unemployment, Inflation and Balance of Payment. Economic growth Economic growth is the most basic indicator of an economy's health which is the rate at which national income is growing. Economic growth is a rise in what an economy can produce if it is using all its scarce resources. A combination of two goods that can be produced in a country when the available resources are fully and efficiently utilized is called production possibility frontier (PPF).
David Ricardo in “The Theory of Com... ... middle of paper ... ...baldi et al. (2008) analyze the role of institutions and innovation in economic growth. The model examines how institutional constraints affect growth rates and sets a framework to study the interactions between institutions and human capital. Their work emphasizes on the effects of the quality of institutions on the allocation of human capital to the research and development and in case of economies with poor institutions how human capital influences growth. Through their analysis, they were able to find that long run growth rate is influenced by the growth rate of innovation which is also determined by the growth of institutions.
Also, research evidences have discovered a certain correlation between electricity use and wealth creation (Ghosh 2002; Shiu and Lam 2004; Morimoto and Hope 2004; Jumbe 2004; Wolde-Rufael 2004; Narayan and Smyth 2005; Yoo 2005). 2.2 Review of Definitional Issues 2.2.1 What Is Economic growth? Economic growth is the increase in the market value of the goods and services produced by an economy over time. It is conventionally measured as the percentage rate of increase in real gross domestic product, or real GDP. Of more importance is the growth of the ratio of GDP to population (GDP per capita), which is also called per capita income.
Technological progress can take place in the form of education, training and research & development (R&D). With this, developing countries have the potential to grow faster. Blomstrom and Kokko (2003) confirmed that the potential of converting this knowledge of technology depends on the economic level of capital. The economic level of capital in a nation is determined by two sources. One is the domestic capital and the other is the foreign capital.
Definition of Economic Growth Economic growth refers to an increase in the goods and services produced by an economy over a particular period of time. It is measured as a percentage increase in real gross domestic product which is GDP adjusted to inflation. GDP is the market value for all the final goods and services produced in an economy. Theories of Economic Growth The classical Approach: Adam Smith laid emphasis on increasing returns as a source of economic growth. He focused on foreign trade to widen the market and raise productivity of trading countries.
2.1.1 Endogenous Growth Theory Endogenous growth theory believes that economic growth is the main result of the internal factor rather than external forces. Endogenous growth economy emphasizes that investment in innovation, knowledge and human capital have a significant influence on the economic growth. The endogenous theory can be interpreted by a simple equation Y=AK. Where Y is the output, A is a constant that reflects all the factors that influenced technology, and K reflects the capital which including human capital. The endogenous theory assumes that the output will be better if the K (capital) has wider assumptions which treat knowledge as a kind of capital.
One of the reason why GDP is important is GDP provides us information about the size and performance of an economy in the country. The growth rate of real GDP is frequently used to indicate the well-being of an economy. If the value of the real GDP is increasing at a rapid rate, companies and organization will most likely hire more employees for their production process and this will increase the employment rate in a country. When the value of GDP decreases, unemployment rate usually increases. However, all of these are subject to the situation in a country.
This means that consumers will spend some of their income on consumption goods. This will give rise to further increase in expenditure. Ceteris paribus an initial rise in autonomous investment produces a more than proportionate rise in income. The rise in income will increase investment to meet the increase demand for output. The Keynesian also points out that as the economy is inconsistently unstable there is the need for government to intercede to make the economy stable when necessary.
As per the neoclassical growth model led by Robert Solow (1956) reveals a clear connection between saving and economic growth. The model indicates that higher saving leads to higher investment, which in turn leads to higher economic growth. The presupposition is that higher saving contributes positively to economic growth; therefore, this has led to strong macroeconomic policy recommendations for development in many countries. Rational of Study: Since saving is one of the main factors to increase investment and economic growth is unquestionable. Accumulation of saving can be consider as the sources of capital stock to which play a crucial role in creating investment, production, and employment and all these activities eventually enhance the economic growth.
Growth in economics refers to economic growth of a country and it means an increase in the market value of services and goods produced by a country over a period of time. Whatever the meaning is taken, both inflation and growth are closely related and dependent on each other and a proper balance should be established. When the money supply increases in the market then disposable income increases in the economy and demand for goods increases by customer. But due to